“Don’t put all your eggs into one basket” is one of the golden rules of investing. But what if one basket is all you need?
If you can find one mutual fund that is fully diversified, and suits your risk tolerance and investment objectives, and you believe in the wisdom of the set-it-and-forget-it philosophy, there is no need to buy anything else.
If this sounds interesting to you, there are a few Vanguard mutual funds you should consider.
The whole idea of diversification is to have a good balance of asset types — such as stocks, bonds and cash — and a variety of different securities within those asset types. Vanguard has a broad variety of mutual funds and ETFs that represent a range of categories, but we will focus on their great selection of balanced funds, or what some call “hybrid funds,” that enable an investor to effectively get several funds in one.
Some of these options at Vanguard include their target retirement funds, but balanced hybrids enable an investor to get a relatively fixed mix of assets and investment types (target funds shift to a more conservative mix over time). Therefore, our top-four list of Vanguard mutual funds will include the best options for aggressive, moderate and conservative allocations, as well as retirement income.
Let’s take a look at four of the best balanced Vanguard mutual funds for the “set it and forget it” investor:
Best Balanced Vanguard Mutual Funds – Vanguard LifeStrategy Growth (VASGX)
Style: Aggressive Allocation
This happens to be Vanguard’s only aggressive allocation fund, but fortunately Vanguard LifeStrategy Growth (VASGX) is an outstanding choice among a crowded field of competitors.
Managed by the same team for 20 years, and sporting a 0.17% expense ratio and $3,000 minimum buy-in, VASGX beats the average aggressive allocation fund for one-, three-, five- and 10-year returns.
VASGX is a “fund of funds” with an aggressive allocation of roughly 80% stocks and 20% bonds. The underlying holdings are four Vanguard index funds: Vanguard Total Stock Market Index (VTSMX), Vanguard Total International Stock Market Index (VGTSX), Vanguard Total Bond Market II Index (VTBIX) and Vanguard Total International Bond Index (VTIBX).
Simplicity at its finest!
Best Balanced Vanguard Mutual Funds – Wellington (VWELX)/Vanguard Star (VGSTX)
Style: Moderate Allocation
One of the first funds in Vanguard’s lineup, Vanguard Wellington (VWELX), also is among the best.
VWELX’s 10-year performance rank easily places it ahead of more than 90% of its moderate allocation category peers. The expense ratio is a bargain at 0.26% and the allocation is comfortably moderate at approximately 64% stocks, 33% bonds and 3% cash.
Not surprisingly, the investment community loved it — this outstanding and consistent performance has attracted more than $26 billion in assets.
However, that’s a size large enough to force the management team, in place for 12 years, to close the fund to new institutional investors and financial advisors.
Fund closures usually are temporary, so if you’re patient, you can wait, and you should be able to buy shares in the near future. Those looking for a Vanguard moderate allocation now, and who would like an alternative that is comparable to VWELX, should look at Vanguard Star (VGSTX).
Vanguard Star is made up of 62% stocks, 25% bonds and 12.5% short-term reserves, making it a bit lighter on bonds than Wellington, but otherwise similar. Meanwhile, VGSTX is ranked 12th in its category for 10-year performance, averaging nearly 8% gains annually.
VGSTX has a paltry $1,000 minimum buy-in and a bargain 0.34% in expenses, well in the lower half of expenses for similar funds.
Best Balanced Vanguard Mutual Funds – Vanguard Wellesley Income (VWINX)
Style: Conservative Allocation
If you were offered a 7.5% annualized return for 10 years with a conservative allocation of stocks, bonds and cash, would you take it? If so, Vanguard Wellesley Income (VWINX) may be your fund.
Another one of Vanguard’s oldies but goodies, VWINX is one of the best conservative allocation funds in the investment universe.
VWINX has outperformed 95% of the funds in its conservative allocation category over the past 10 years, has a low expense ratio of 0.25% and requires a minimum initial purchase of just $3,000.
Best Balanced Vanguard Mutual Funds – Vanguard Managed Payout (VPGDX)
Style: Retirement Income
If you are retired and would like a simple, low-cost, high quality retirement income fund, Vanguard Managed Payout (VPGDX) is an excellent consideration.
Retirement income funds invest in a way that balances three retired investor priorities, in this order: 1) preservation of assets, 2) income and 3) growth. Therefore, what results is an average return somewhere between 3% and 4% with rare short-term returns lower than zero and decent yields for income.
VPGDX has only been around for eight years, but the annualized return since inception is 5%. If you’re looking for income, the 30-day SEC yield is just 1.44% — but that’s because some of Managed Payout’s distributions come in forms including return of capital and capital gains. VPGDX strives for an annual distribution yield of 4%.
The minimum initial investment is $25,000, but this is not a large hurdle for most retired investors, and the low expense ratio of 0.34% won’t eat into your income.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.